What do you need to think about when transitioning a portion of your business from a B2B model to a B2C model?
This type of major strategy shift requires a full-scale examination of every facet of the organization – sales, marketing, operations, manufacturing, supply chain, logistics, and R&D. It is wide-reaching and comprehensive, rippling through everything that comprises what you sell, how you make/acquire it, and how you sell it.
As Chief Financial Officers (CFOs) we view a transition like this through a financial lens, which means that from our perspective we are focused on:
- Pricing
A shift in focus from B2B to B2C will require a change in pricing strategy. B2B organizations will typically have different pricing tiers for different levels of business, offering lower prices to larger purchasers and sometimes even offering different payment terms or financing options to individual accounts or different segments. However, with B2C there is typically one price for everyone with much more rigid payment terms. But the differences in pricing do not end there! Moving from B2B to B2C means that instead of selling large orders to a small number of customers, you will be selling smaller orders to a larger number of customers. Your prices will need to reflect the differences in cost that accompany this kind of switch.
- Expenses
Implementing a B2C approach typically involves added expenses initially around market research and analysis, product adaptations, and sales channel changes. Additionally, taking a B2C approach will almost certainly result in increased ongoing costs around marketing, advertising, customer service, payment processing fees, refunds, and returns. In some cases, expenses around things like packaging and transportation may also increase as well. These will all need to be considered when determining pricing and carefully managed to ensure a positive ROI.
- Metrics
Measuring ROI looks different in a B2C setting than a B2B setting. For example, a metric like Customer Acquisition Cost (CAC) is an extremely important metric for B2C companies to track, but likely is left out of the conversation entirely in B2B organizations. Understanding which key performance indicators (KPIs) are going to give you an accurate picture of the company’s health is a crucial component of effective management. Focusing on the right KPIs for that area of the business will help leadership to understand how it is performing relative to other areas of the business as well as the industry overall. Without the right KPIs in place a company cannot properly manage cash flow.
- Cash Flow
As cash is invested into transitioning a portion of the business to a B2C model, keeping an eye on cashflow is of the upmost importance. Leaning on the right KPIs helps to frame the conversation in a way that allows leadership to plan, forecast, and budget more effectively. The result is better cash flow management, scalability, and financial stability, which is especially important during times of significant strategic shifts. One area where cash flow has a very practical financial implication is on the inventory side of the equation.
- Inventory
Inventory acquisition, storage, and transportation all change when moving from B2B to B2C. Turning over inventory in B2C may require a company to take an entirely different approach to their supply chain, logistics, and distribution models. In some cases, the company’s infrastructure itself may need to be expanded to accommodate this kind of shift as well. These kinds of major shifts affect everything from cash flow and expenses to risk management.
- Risk
An organization’s risk profile changes when it rolls out a new strategy. Experimenting, adapting, and honing a new business model alters the risk vector associated with doing business. As such, leadership must be prepared to scenario plan for not only the financial consequences that may result but also how outside influences like market shifts, economic uncertainty, and political turmoil may affect the company. The goal is to ensure that the organization is not left financially exposed in the event of unforeseen events. The organization’s new strategy should be considered when assessing risk to mitigate financial, operational, technological, natural, geopolitical, and legal risks.
- Legal
Depending on the industry and the nature of the business itself, moving from a strictly B2B approach to include a B2C approach may also include regulatory changes. While there will very likely be new tax implications to consider, the legal ramifications do not end there. Different regulations and compliance requirements may also accompany a switch from B2B to B2C. Since these can have both legal and financial effects, having experts in both fields to advise on strategy is highly recommended.
When your business strategy is shifting, you need strong financial leadership to guide the way. A skilled CFO will have the experience and perspective needed to assist in the transition from B2B to B2C. Let our team of CFO consultants come alongside your organization to advise on your strategy and put the pieces in place to support this kind of change. Our consulting CFOs have experience in all stages of business across numerous industries to help you execute your strategy successfully. Contact us to find out more today!
